Australia too slow to react to US shale gas threat: Shell

Royal Dutch Shell chief executive Peter Voser says the energy giant is prepared to invest in Australia but that “we need clearly a competitive landscape” to commit to further spending commitments in a high-cost environment.
AFR

The head of one of the world’s biggest energy companies, Royal Dutch Shell, has said Australia has been slow to react to the impact of the United States shale gas revolution as it weighs up more than $US20 billion of uncommitted spending on liquefied natural gas projects.

Royal Dutch Shell’s global chief executive
Peter Voser
took his concerns about the industry’s competitiveness to Prime Minister
Julia Gillard
and Opposition Leader
Tony Abbot
t in meetings in Canberra on Monday. He also held talks with West Australian Premier
Colin Barnett
on Tuesday.

“From where I sit I would say that the improvements have been slower than anticipated given that the situation on gas has changed considerably over the last two or three years with the shale gas revolution and new gas resources being found," Mr Voser said in an exclusive interview in Canberra.

“So I would have expected the Australian government but also Australia as a whole to react somewhat faster to these challenges so that our projects can be sanctioned in the near future."

Mr Voser reassured Australian politicians Shell was prepared to invest in Australia but warned “we need clearly a competitive landscape" to commit to further spending commitments in a high-cost environment.

Interventions needed to help projects

Massive LNG projects including its $20 billion-plus Arrow LNG venture in Queensland with PetroChina and an expansion of Chevron’s $52 billion ­Gorgon LNG venture have yet to receive investment approval.

The oil major’s global boss expressed surprise that Australia had not acted with more urgency to tackle its rising cost base to ensure it captures a bigger share of the global LNG market despite mounting overseas competition.

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Mr Voser said that while he didn’t like to describe Shell’s future LNG projects in Australia as hanging in the balance, “some interventions" were needed in the next 18-24 months to move them forward.

“These are the projects where we need to work together in a constructive way between government, industry, society, unions to make sure that Australia stays competitive against the competition from east Africa, from Canada and from the US," he said. “Clearly the costs [in those countries] are not as high as here in Australia given the productivity is actually higher, for example in the States."

Mr Voser singled out productivity and overlapping regulations as particular areas of concern. “That’s all costs at the end of the day," he said.

“We need structural improvements on the one side but we also need regulatory improvements and a stable fiscal regime going forward. “

Shell one of our biggest investors

Shell is set to spend about $US30 billion in Australia over the next five years, making it one of the country’s biggest investors. It is building what is set to be the world’s first floating LNG project at the Prelude field in the Browse Basin and owns 25 per cent of Chevron’s $52 billion Gorgon LNG venture, which has run significantly over budget.

However alongside those committed investments Shell has a chunky line-up of potential projects, including Arrow, the Browse LNG project with Operator Woodside Petroleum, now likely to be developed as another floating project, and the tentatively planned expansion of Gorgon, among others.

On the Arrow project, Mr Voser seemed to confirm expectations that Shell is leaning towards a cooperative development with one of the other coal seam gas based LNG ventures in Queensland.

“We could see strong value being delivered by using the consolidation opportunities," he said.

“We’ll decide depending on the ­values those can give us if that is the better way forward than a stand-alone development, but at the moment we are ­pursuing both."

Mr Voser also expressed reservations about moving ahead with engineering work on an expansion at Gorgon until the initial project is further advanced.

“For us it’s quite key that the Gorgon project is further developed and finished before we actually think about the next train," he said.

Shell and ExxonMobil’s reluctance to move forward with a Gorgon expansion has already delayed engineering and design work from the end of 2012 as had been targeted by operator Chevron.

Voser got ‘right vibes’ in meetings

Petroleum industry leaders have said that up to $150 billion of further investment in LNG projects in Australia was at risk in all.

Mr Voser said he was still optimistic about the prospects for further Shell investment in Australia, despite the group’s wealth of LNG opportunities around the world, including a fast-developing export venture in British Columbia, eastern Canada, with PetroChina and other Asian LNG buyers.

He said that in meetings he had held during his brief stay in Australia, believed to include Ms Gillard and Mr Abbott, he had “got the right vibes" from all sides.

“What I take away at various levels that the issues are known, are clear and solutions need to be delivered in the short medium term so that these investments can contribute in the longer term to the Australian economy," Mr Voser said.

Shell Australia chairman Ann Pickard, who has been a vocal spokesperson about industry issues, noted however that government consultation with industry had improved during her time in Australia since the Resources Super Profits Tax landed on the industry in her first week.

“I’ve seen really good consultation on things like tax, which is very important," Ms Pickard said. “That’s a very big positive."

Mr Voser, who is due to retire from Shell in 2014, was scheduled to hold talks with West Australian Premier Colin Barnett in Perth on Tuesday, where he was expected to raise the thorny issue of floating LNG.

Wants Browse to be floating

Shell is pushing to have Woodside’s Browse project revamped as a floating project to follow Prelude, but Mr Barnett wants an onshore project to maximise jobs and royalties for the state.

Mr Voser signalled he expects to find a way forward for Browse as a floating LNG (FLNG) project despite Mr Barnett’s reservations and said Australian ventures ranked highly among the group’s worldwide range of FLNG opportunities and minimised cost exposures.

Shell has voiced ambitions to develop a “conveyor belt" of floating LNG projects around the world, using ships constructed in Korean shipyards.

“The beauty of floating LNG is to construct one after another you get actually the cost curve better under control," Mr Voser said.

Chevron’s Australian MD Roy Krzywosinski also on Wednesday acknowledged there was no certainty that design work for train Four at Gorgon would move ahead in line with the revised target of the end of 2014either.

“We have the gas, we have the alignment, it’s just a matter of seeing where this investment climate settles," Mr Krzywosinski said on the sidelines of the APPEA conference in Brisbane on Tuesday.

“At the end of the day as developers we’re looking for a stable and predictable investment environment."